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OFAC has released and will publish on May 10 an interim final rule to amend the Reporting, Procedures and Penalties Regulations (the “Regulations”), to require electronic filing of certain submissions to OFAC and to describe and modify certain reporting requirements related to blocked property and rejected transactions. In particular, the rule would require use of the electronic OFAC Reporting System for submission of reports related to blocked property and rejected transactions, remove the mail option for certain other types of OFAC submissions, describe reports OFAC may require from financial institutions for transactions that meet specified criteria, and add a reporting requirement for any blocked property that is unblocked or transferred.

Additionally, OFAC is clarifying the scope of the reporting requirement for rejected transactions, in part to respond to comments received on the interim final rule OFAC published on June 21, 2019 to amend the Regulations. The interim final rule also modifies the procedures for requests relating to property that is blocked in error and updating the Regulations with respect to the availability of information under the Freedom of Information Act (FOIA) for certain categories of records.

The rule also clarifies that persons may submit a petition for administrative reconsideration to seek removal of a person or property from the List of Specially Designated Nationals and Blocked Persons or any other list of sanctioned persons maintained by OFAC. OFAC is also adding a description of reports OFAC may require financial institutions to provide about transactions that meet specified criteria to aid in the identification of blocked property. Finally, OFAC is making several technical and
conforming edits.

The rule will become effective 90 days after publication (August 8, 2024). Comments on the interim final rule will be accepted for 31 days after publication (through June 10, 2024).

Yesterday, FinCEN issued an Advisory to assist financial institutions in detecting potentially illicit transactions related to Islamic Republic of Iran-backed terrorist organizations. The Advisory highlights the means by which certain terrorist organizations receive support from Iran and describes several typologies these terrorist organizations use to illicitly access or circumvent the international financial system to raise, move, and spend funds. It also provides red flags that may assist financial institutions in identifying related suspicious activity.

Recent events have underscored Iran’s involvement in and financing of terrorist activity in the region. Iran seeks, among other goals, to project power by exporting terrorism throughout the Middle East and beyond by financing a range of regional armed groups, some of which are U.S.-designated Foreign Terrorist Organizations or Specially Designated Global Terrorist organizations. These terrorist organizations include Lebanese Hizballah, Hamas, the Palestinian Islamic Jihad, the Houthis, and several Iran-aligned militia groups in Iraq and Syria.

FinCEN requests that financial institutions reference this advisory in SAR field 2 and the narrative by including "IRANTF-2024-A001" and selecting SAR field 33(a) when filing SARs related to matters discussed in the Advisory.

• Advisory FIN-2024-A001

The CFPB has announced it has taken action against Chime Financial for failing to give consumers timely refunds when their accounts were closed. Thousands of consumers waited for weeks or even months for balance refunds after closing their accounts — a failure that inflicted significant financial harm on consumers who did not have access to critical funds to help make ends meet. In some cases, consumers had to seek expensive forms of credit to cover bills that were due. The CFPB’s order requires Chime to provide at least $1.3 million in redress to consumers it harmed, and pay a $3.25 million penalty into the CFPB’s victims relief fund.

Chime Financial is a nonbank company headquartered in San Francisco. The company partners with banks to offer financial products, including checking accounts, savings accounts, and credit cards. Chime has $1.5 billion in annualized revenue. Approximately seven million consumers make $8 billion in transactions using Chime cards each month. It is not publicly owned, and relies, in large part, on investments through venture capital firms.

In most instances, when consumers’ checking and savings accounts are closed, Chime automatically refunds remaining balances by check. Until 2021, Chime’s policy, reflected in consumer account agreements, was to process and mail refund checks within 14 days of an account’s closure. But the CFPB found that Chime:

• Failed to timely provide consumer refunds: Chime failed to issue consumer refunds within the 14 days promised by its policy, including thousands of instances in which Chime did not get refunds to consumers within 90 days.
• Deprived consumers of needed funds to meet their responsibilities: Chime’s slow response in returning consumer funds prevented thousands of consumers from accessing their money – sometimes for months on end. Consumers who did not have access to their funds were often unable to pay for basic living expenses, and likely had to use or search for expensive credit alternatives, such as credit cards or payday loans.

Under the CFPB’s order (click HERE), Chime must:

• Pay at least $1.3 million in redress: Chime must pay at least $1.3 million in redress to harmed consumers. Generally, a harmed consumer will receive at least $150 in redress if, after 14 days from account closure, they still had a minimum unrefunded balance of $10.
• Pay $3.25 million in penalties: Chime will pay $3.25 million in penalties to the CFPB’s victims relief fund.
• Provide timely refunds: Chime must come into compliance with the law, including providing refund checks on closed accounts within a reasonable period.

The Federal Reserve Board has reported that First Citizens Bank of Butte, Butte, Montana, has entered into a formal agreement with the Federal Reserve Bank of Minneapolis and the Montana Division of Banking and Financial Institutions, to address deficiencies identified in the most recent examination of the bank conducted by the Division and the Reserve Bank relating to the bank's risk management and compliance with applicable federal laws, rules, and regulations relating to BSA/AML compliance.

On Tuesday, the United States designated Dmitry Yuryevich Khoroshev, a Russian national and a leader of the Russia-based LockBit group, for his role in developing and distributing LockBit ransomware. This designation is the result of a collaborative effort with the U.S. Department of Justice, Federal Bureau of Investigation, the United Kingdom’s National Crime Agency, the Australian Federal Police, and other international partners.

Concurrently, the Department of Justice is unsealing an indictment and the Department of State is announcing a reward offer for information leading to the arrest and/or conviction of Khoroshev. The United Kingdom and Australia are also announcing the designation of Khoroshev.

For identification information on Khoroshev, see BankersOnline’s May 7, 2024, OFAC Update.

Federal Reserve Financial Services yesterday released the results of studies indicating that U.S. businesses and consumers are rapidly adopting digital, faster and instant payment services, according to studies released today by Federal Reserve Financial Services. Digital wallet use saw especially strong growth in 2023 — efficiency-focused businesses increased their use by 31% over the prior year, and convenience-minded consumers experienced a 32% increase.

These changes, particularly consumers’ use of digital wallets and online banking, are leading to increases in instant and faster payment use cases such as bill payment, mobile wallet funding and defunding, account-to-account transfers, and immediate payroll for employees.

Overall, 86% of businesses and 74% of consumers said they used faster or instant payments in 2023, and most (74% of businesses and 79% of consumers) reported looking to their financial institution to provide these services. Other key findings:

• Younger consumers are leading the move to digital, faster and instant payments. More than half of Generation Z (ages 18-25) and millennials (26-41) now use digital wallets, and 80% of these younger consumers say it is important to be able to make payments by mobile device.
• One in four (25%) consumers are challenged by the slow speed of payments and prefer to have better options for instant money movement to help manage personal finances.
• Businesses are using faster/instant payments because it helps them reduce cost (48%) and provides flexibility to pay and be paid as customers prefer (39%). Additionally, 35% appreciate the 24/7 nature of instant payment services.
• Businesses say key use cases that benefit from instant payments include business-to-business (92%), business-to-person (71%) and account-to-account (40%). Many businesses also believe instant payments will be useful for digital wallet funding/defunding (50%) and earned wage access (25%).

Full reports:

• Business Research Brief
• Consumer Research Brief
  

OFAC has announced the formal launch of its new OFAC Sanctions List Service (SLS) application. SLS is now the primary application OFAC will use to deliver sanctions list files and data to the public.

SLS includes support for all OFAC legacy and modern sanctions list data files. While certain sanctions list data are now hosted within the SLS cloud, existing links to OFAC list files remain functional through URL redirects.

The Sanctions List Service application incorporates the traditional OFAC Sanctions List Search tool which will continue to be available at https://sanctionssearch.ofac.treas.gov/.

The May 3, 2024, issue of FDIC Consumer News has been posted, with an article on "Your Business, Your Deposits." The article includes sections on:

• Things to know about small business accounts
• Payments from customers
• Deciding on whether the separate consumer and business deposit accounts
• Varying protections for consumer versus commercial accounts
• Watching out for scams targeting businesses

The FDIC, Federal Housing Finance Agency, NCUA, and OCC have issued a Joint Press Release announcing that the FDIC, the OCC, and the FHFA have adopted a Notice of Proposed Rulemaking (NPR) to address incentive-based compensation arrangements, as required under section 956 of the Dodd-Frank Act (section 956). The NCUA is expected to take action on the NPR in the near future. The U.S. Securities and Exchange Commission (SEC) has included a rulemaking to implement section 956 on its rulemaking agenda. This NPR is intended to advance stakeholder engagement needed to develop a final incentive-based compensation rule.

The NPR re-proposes the regulatory text previously proposed in June 2016, and seeks public comment in the preamble on certain alternatives and questions.

Section 956 requires the appropriate Federal regulators—the FDIC, the Board of Governors of the Federal Reserve System (FRB), the OCC, the NCUA, the FHFA, and the SEC—to jointly prescribe regulations or guidelines with respect to incentive-based compensation practices at certain financial institutions that have $1 billion or more in assets. Once the NPR is adopted by all six agencies, it will be published in the Federal Register with a comment period of 60 days following publication. Until then, each agency acting on the NPR will make it available on their respective website, and will accept comments. If any of the six regulators specified by section 956 fails to join in the rulemaking, the rulemaking will not go forward.

The proposed rule includes prohibitions intended to make incentive-based compensation arrangements more sensitive to risk. These include a prohibition on incentive-based compensation arrangements that do not include risk adjustment of awards, deferral of payments, and forfeiture and clawback provisions. The prohibitions also emphasize the important role of sound governance and risk management control mechanisms. These prohibitions would help safeguard covered institutions from the types and features of incentive-based compensation arrangements that encourage inappropriate risks. The recordkeeping and disclosure requirements in the proposed regulatory text would assist the appropriate Federal regulator in monitoring and identifying areas of potential concern at covered institutions.

Comments received on this NPR and those previously submitted on the 2016 NPR will further inform efforts to address incentive-based compensation arrangements, as required under section 956.

The FDIC, OCC and Federal Reserve Board have jointly announced their issuance of a guide to support community banks in managing risks presented by third-party relationships.

Third-party relationships present varied risks that community banks are expected to appropriately identify, assess, monitor, and control to ensure that their activities are performed in a safe and sound manner and in compliance with applicable laws and regulations. These laws and regulations include, but are not limited to, those designed to protect consumers and those addressing financial crimes.

The guide offers potential considerations, resources, and examples through each stage of the third-party relationship and may be a helpful resource for community banks. While the guide illustrates the principles discussed in the third-party risk management guidance issued by the agencies in June 2023, it is not a substitute for that guidance.

• Third-Party Risk Managment: A Guide for Community Banks
• OCC Bulletin 2024-11
• FIL-20-2024